Jesse Burton 24th October 2016 Jesse.Burton@uct.ac.za 1 The - - PowerPoint PPT Presentation

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Jesse Burton 24th October 2016 Jesse.Burton@uct.ac.za

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 The mitigation challenge  Energy markets – technology prices and coal markets  South Africa’s INDC and climate change commitments  South Africa’s committed emissions  Making a ‘fair share’ mitigation contribution: effects

• n the power sector and liquid fuels

 Moving forward: the coal sector

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Pfeiffer et al 2015

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Geden, 2016

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Developed reserves vs carbon budget

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Unburnable reserves

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Climate Action Tracker

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INDCs and 2 degrees

 “There remains a substantial gap between what

governments have promised to do and the total level of actions they have undertaken to date. Furthermore, both the current policy and pledge trajectories lie well above emissions pathways consistent with a 1.5°C or 2°C world.”

 December 2015 - INDCs likely below 3°C and over 90%

chance exceeding 2°C

 The emissions pledge pathway that includes INDCs has

• ver a 90% probability of exceeding 2°C, and only a ‘likely’

(>66%) chance of remaining below 3°C this century. The current policy pathways have a higher than 99.5% probability of exceeding 2°C.

 Climate action tracker

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Large cost declines

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South African costs

CSIR, 2016

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Rapid uptake

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Coal markets

 Peak demand (Goldman Sachs, Deutsche Bank,

Bernstein, Citi)?

 Structural vs cyclical?  Recent price rally due to Chinese policies  not long term structural recovery  US and EU are transitioning – slowly – away from coal  Not just ‘greenies’ – economics of coal no longer

competitive (eg USA)

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PPD vs South Africa’s fair share

Base 10 Gt

14 Gt 100 200 300 400 500 600 700 0.00 100.00 200.00 300.00 400.00 500.00 600.00 700.00 PPD Upper PPD Lower PRIMAP 90th PRIMAP 10th Base 10Gt Constraint 14Gt Constraint

Source: Burton & Caetano 2015

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Infrastructural inertia: committed emissions

What level of emissions is South Africa locked into?

Burton et al 2015

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 Previous work has examined the effects of meeting approx.

the mid-range of South Africa’s NDC (14Gt carbon budget to 2050)

 Extended to assess effect of 12 and 10Gt constraints on

power plant utilisation

 Implications – below 14Gt, substantial stranding of power

sector assets (old and new)

 Exacerbated if CTL not stranded (2040 plant life)  Other infrastructure stranding not detailed eg rail, road,

and water investments

 No detail on firm-level fossil fuel stranding (future work)

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Key terms

 Stranded assets are defined as assets that “have

suffered from unanticipated or premature write- downs, devaluations or conversion to liabilities” (Caldecott et al, 2014)

 “Stranded capacity” is the underutilisation of existing

plant, which when run at very low load factors renders those plants uneconomic (Johnson et al, 2013) or results in earnings foregone

 Technical vs transition costs: costs of investment in

new technology vs costs of underutilisation of preexisting, high carbon infrastructure

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Research questions

 What is the effect on the South African energy sector

• f the country meeting a fair mitigation burden?

 What are the impacts of different carbon budgets on

infrastructure (under-) utilisation?

 What are the trade-offs of not mitigating in non-

electricity sectors?

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 South African Times Model (SATIM)  Full energy sector model  Least-cost optimisation:  meets projected future energy demand, given assumptions such as the

retirement schedule of existing infrastructure, future fuel costs, future technology costs, learning rates, and efficiency improvements, as well as any given constraints such as the availability of resources

 10, 12, and 14Gt CO2-eq (2015-2050) constraints imposed for

comparison

Model and scenarios

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Assumptions

 Altieri et al (2015) for full set of assumptions  Assume retirement as per Eskom (IRP)  Power plant cost and performance parameters were

aligned to the IRP update assumptions (IRP Update 2010, 2013)

 updates on the investment cost for nuclear, CSP and

PV derived from recent work within ERC (Merven et al., 2015)

 And coal supply as per Merven et al (WB and CB

separated; old contracts)

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Carbon constraints – electricity

Burton et al 2016

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NDC vs higher ambition - elec

100 200 300 400 500 600 700 2010 2015 2020 2025 2030 2035 2040 2045 2050 2010 2015 2020 2025 2030 2035 2040 2045 2050 2010 2015 2020 2025 2030 2035 2040 2045 2050 10 Gt constraint 12 Gt constraint 14 Gt constraint Electricity Production (TWh) Imported Electricity (Gas) Imported Electricity (Coal) Imported Electricity (Hydro) Biomass Pumped Storage Hydro domestic Wind Central Solar PV Solar Thermal Nuclear Coastal Gas Gas Domestic Shale Gas from N Moz Inland Gas Plants OCGT diesel New Coal Existing Coal

Burton et al, 2016

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Load factors for coal fleet

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Higher ambition plus Sasol fixed

100 200 300 400 500 600 700 2010 2020 2030 2040 2050 2010 2020 2030 2040 2050 2010 2020 2030 2040 2050 2010 2020 2030 2040 2050 10 Gt constraint 12 Gt constraint 10 Gt constraint SAS 12 Gt constraint SAS Electricity {Production (TWh) Imported Electricity (Gas) Imported Electricity (Coal) Imported Electricity (Hydro) Biomass Pumped Storage Hydro domestic Wind Central Solar PV Solar Thermal Nuclear Coastal Gas Gas Domestic Shale Gas from N Moz Inland Gas Plants OCGT diesel New Coal Existing Coal

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Electricity prices

 Driven by new investments in RE  But also by ‘transition costs’  The costs of not recouping investments made in coal

plants

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12 vs 12SAS

 Cumulative investment is similar  But have to build new generation capacity much

earlier and strand coal plants

 So higher prices from 2030s onwards for the same

electricity output

 The “transition costs” are borne by electricity users

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Conclusions

 Committed emissions are already very high (at least 7.4Gt)

and given long lives and inertia, investments in emissions intensive infrastructure should be carefully considered

 Socio-economic consequences of stranding assets in

South Africa are likely to be substantial - even with

• ptimistic export assumptions

 Mitigation policy needs to be “least-cost” and integrated  ie an IEP, not a grandfathered IRP  Trade-offs between sectors need to be better understood

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understanding and planning a transition

 Coal prices have doubled in the past 5 years  And will on average continue to increase  Costs of rehab fall to Eskom and not adequately

covered

 Global demand will likely flatten in the medium term  This will – again – raise domestic prices in general  RE costs falling and significant uptake globally  Increasing global pressure as INDC are reviewed and

ratcheted

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Just transition?

 South Africa needs a plan to avoid carbon lock-in and

the costs of stranding assets (mines, rail, ports, roads)

 No new coal unless it is replacing old, inefficient and

expensive plants

 We need to develop retraining packages and

programmes for workers

 We need to understand options for social intervention

for local communities

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Just transition?

 In a future carbon constrained world, there will be

limits to both use and extraction. We need to understand the trade offs between major consumers and multiple producers of coal.

 A key question is who gets to extract their coal and for

whom?

 Political ramifications depend on which plants and

mines are affected

 Macro political & economic question  Social question at micro level

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 Thank you! Questions?  Thanks also to my colleagues at the ERC, who have

spent years developing the model used for this study and have spent days explaining to me how it works:

 Tara Caetano, Bruno Merven, Alison Hughes, Adrian

Stone, Bryce McCall, and Fadiel Ahjum

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References

 Burton, J, Caetano, T, Hughes, A, Merven, B, Ahjum, F,

McCall, B (2016) The impact of stranding power sector assets in South Africa: Using a linked model to understand economy-wide implications